Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 45 - Evidence - May 23, 2013
OTTAWA, Thursday, May 23, 2013
The Standing Senate Committee on Energy, the Environment and Natural
Resources met this day, at 8:03 a.m., to study the current state of the
safety elements of the bulk transport of hydrocarbon products in Canada.
Senator Richard Neufeld (Chair) in the chair.
The Chair: Welcome to this meeting of the Standing Senate
Committee on Energy, the Environment and Natural Resources.
My name is Richard Neufeld. I represent the Province of British Columbia,
and I am chair of this committee. I would like to welcome honourable
senators, any members of the public with us in the room and viewers from
across the country who are watching on television.
I now ask the senators to introduce themselves, and I will start by
introducing the senator to my right, Senator Grant Mitchell from Alberta.
Senator Lang: Senator Lang, Yukon.
Senator Massicotte: Paul Massicotte, Montreal.
Senator Wallace: John Wallace, New Brunswick.
Senator Seidman: Judith Seidman from Montreal, Quebec.
Senator Unger: Betty Unger, Edmonton, Alberta.
Senator Patterson: Dennis Patterson, Nunavut.
Senator Ringuette: I am staying quiet with my cold.
The Chair: Senator Ringuette, from New Brunswick.
I would also like to introduce our staff: the clerk, Lynn Gordon; and our
two Library of Parliament analysts, Sam Banks and Marc LeBlanc.
On November 28, 2012 our committee was authorized by the Senate to
initiate a study on the safe transportation of hydrocarbons in Canada. The
study will examine and compare domestic and international regulatory regime
standards and best practices relating to the safe transport of hydrocarbons
by transmission pipeline, marine tanker vessels and railcars.
Our committee has held 11 meetings on the study to date. We have also
travelled to Calgary for fact finding meetings and made site visits to
Sarnia and Hamilton, Ontario.
Today, I am pleased to welcome, in the first segment of our meeting, from
the Canadian National Railway Company, joining us by video conference from
Montreal, Michael Farkouh, Vice-President, Safety and Sustainability; and
Sam Berrada, General Manager, Safety and Regulatory Affairs.
Mr. Berrada, I think we first met when we were in Calgary, so I look
forward to our conversations today.
I do not know which one of you is delivering the presentation, but please
proceed. Afterwards we will take questions and answers.
Michael Farkouh, Vice-President, Safety and Sustainability, Canadian
National Railway Company: Thank you very much, and good morning. Mr.
Chair and honourable senators, we appreciate this opportunity to review CN's
safety initiatives and progress made over the past few years to strengthen
its Safety Management System and safety culture.
Since the inception of the Safety Management System regulations more than
a decade ago, CN has embraced this opportunity not only to meet regulatory
requirements but also to exceed them in many areas with the conviction that
everything that we do to strengthen safety will make us more successful as a
business and help us deliver on our responsibilities to our customers,
employees, and the public.
We will take about 15 minutes to highlight key areas of the presentation
that was delivered to some members of your committee on March 6 of this
Material that we have provided shows that much effort has been made to
improve safety and sustainability, with a number of positive results,
including safety performance and external recognition. Yet, we understand
that much work remains ahead of us because safety is a work-in-progress,
where every accident or injury is one too many.
Following the review of this material, we will be pleased to answer
questions in the 45 minutes allotted to us.
I direct your attention to slides 2, 3 and 4, which highlight CN's
important role in supporting the economy.
With a network that spans Canada from the Atlantic to the Pacific Oceans
and the south through the central United States to the Gulf of Mexico, CN is
a backbone of the economy, which supports both internal growth and exports
As noted on slide 3, of particular interest is CN's operation at the Port
of Prince Rupert, which offers a shorter and more efficient route to and
from Asia, providing a competitive advantage that benefits exporters and
CN serves a diverse group of customers in the categories of bulk
commodities, intermodal, general merchandise and petroleum and chemicals.
Our focus on supply chain collaboration has allowed us to improve service
and to support our customers in growing their business.
To further exemplify the magnitude of CN's contribution to the economy,
CN's 23,000 employees move products valued at $250 billion on an annual
basis, and its capital investments exceeded $8 billion over the past five
years. We will spend nearly $2 billion this calendar year.
I draw your attention to slides 5, 6, 7 and 8. These provide an overview
of the regulatory framework in Canada and the U.S.
CN's safety programs are designed to meet and exceed regulatory
requirements on both sides of the border. There are many examples of
initiatives and investments that far exceed regulatory requirements because
we consider regulations to be a minimum requirement and we embrace Safety
Management System regulations which, in effect, add to regulations by
providing a framework for railways to develop and manage their safety
programs to exceed the base requirements. This is consistent with market
forces that drive continuous improvement because there is a vested interest
for companies to operate safely. This is certainly our conviction at CN
because we recognize that our investments in safety will help us to better
serve our customers with consistency and efficiency.
Examples of where we have decided to far exceed regulatory requirements
for the inspection of our track and equipment are — and I draw your
attention to slide 7 — ultrasonic rail flaw detection that identifies
internal defects in rails that visual inspection cannot find. We inspect our
main track up to 18 times per year, whereas regulations require no more than
four times. We do this because broken rails cause service disruptions and
derailments that can be very costly. Our analysis has concluded that it is
in our interest to exceed regulations, so we have made this part of our
Safety Management System.
Another example is track geometry testing, which is performed with
mechanized vehicles that inspect track for geometric imperfections. Again
based on our analysis, we decided to test some of our main track up to seven
times a year, whereas regulations require only three times. As well, CN has
been a leader in wayside inspection systems that detect defective mechanical
components such as wheels and bearings. CN has the densest and most advanced
network in North America, which greatly exceeds regulatory requirements.
There are numerous other systems where CN has decided that it is the
right thing to do to invest in safety, even if regulations do not require
it, because we are convinced that safe operation is an enabler for
performance and success.
Slides 9 to 13 provide an overview of CN's comprehensive approach to
manage safety with initiatives encompassing people, process, technology and
investments. The first pillar deals with people, where we have a number of
initiatives to strengthen employee skills and culture. These initiatives
have been developed in a partnership with our labour organizations and
employees, including our policy health and safety committee, which consists
of senior members from both labour and management.
To the best of our knowledge, CN is the first railway in North America to
measure safety culture systematically and consistently with the approach
that was developed with working groups involving unions, railways and the
regulator. This approach is featured in Transport Canada's website. CN's
efforts in measuring and strengthening safety culture have been recognized
by the Railway Association of Canada as well as by Transport Canada.
Back to the broader topic of people, on slide 9, a key initiative that we
would like to highlight is CN's training excellence, which delivers modern
and effective training at a critical juncture of our demographics when half
of our work force will be renewed over the next five- to seven-year period.
A few years ago the aging of our work force and the looming spike in
retirements were recognized as an opportunity to shape our future by
designing and delivering a training program that would provide knowledge,
field skills and confidence so that a new generation of railroaders would be
well equipped and motivated to serve our customers effectively and
passionately. This in turn would deliver an entire generation of railroaders
that will help our customers succeed. This initiative has progressed with
employee involvement in CN's policy, health and safety committee, as well as
employee focus groups that have helped shape this program by raising the bar
on training effectiveness.
As an example, we have learned technology by using iPads in our conductor
training classes to increase simulations and raise the level of
interactivity to augment training effectiveness and to better connect with
our new generation of railroaders. We are also making a major investment in
new training facilities that will be centralized in Winnipeg and Chicago,
with the aim to build state-of-the-art facilities that will support quality
training programs that are both effective and consistent.
With respect to safety culture, we recognized at the time of the Railway
Safety Act review in 2007 that this was a huge opportunity to increase
employee engagement and take safety to the next level. We embraced this
initiative by working closely with Transport Canada, railways, the unions
and working groups that defined safety culture and identified initiatives
that are characteristic of a strong safety culture. We developed and
implemented a process to measure and strengthen safety culture, which as we
said earlier became an industry standard and received recognition.
We are not stopping here because over the past two years we have been
working closely with Saint Mary's University, which is a source of external
expertise in safety culture and safety leadership. This is to help us
sustain our safety culture progress. We are now working with this university
to implement a near-miss hotline to better understand and address human
factors and issues with a view to preventing accidents and incidents.
Moving on to slides 11, 12 and 13, they provide many examples where CN
has been leveraging technology to improve safety because this represents
another line of defence that goes beyond what visual or physical inspections
We covered some examples earlier, and in the interest of time we will not
cover any more. We have provided a summary of these technologies in annex 2
of our presentation, where you will note that most of these technologies far
exceed regulatory requirements, and in many cases there are simply no
regulations that require such technologies.
These self-directed investments that go beyond regulations demonstrate
that Safety Management System regulations are effective, and bring direct
benefits to rail safety, because they provide a framework for railways to
achieve continuous improvement. This is consistent with their vested
interest in operating safely because of the direct benefits and success that
Moving to slide 14, this shows that these initiatives and investments
have made a difference with CN's Transportation Safety Board main track
accidents. They have improved 66 per cent over seven years in spite of
volume growth of about 30 per cent in this time frame. On a normalized
basis, the improvement would be even greater. We see a similar picture for
injuries that have improved almost 50 per cent in the same time frame on the
strengths of our efforts to strengthen safety culture.
Slide 15 shows that significant improvements have also been made in
reducing crossing and trespasser accidents. These graphs show that much
progress has been made, yet we realize that much remains ahead because every
accident and injury is one too many.
Moving on to slide 16, this brings us to the transportation of crude oil
by rail, where we can see many reasons while rail delivers on its role as a
backbone of the economy.
It is important to remember that CN has been transporting refined oil
products such as diesel and aviation fuel safely for many decades. Going
forward, a key point is that rail complements pipeline safety and provides
an alternative for producers because the rail network has an infrastructure
with more reach than pipeline. It often enables producers to get better
prices for their product.
As well, rail is more nimble and adaptable because it allows for rapid
change, responding to different scales or volumes to match dynamic market
conditions. This flexibility ensures there will be a role for rail in
transporting crude, regardless of future pipeline construction.
This flexibility provides value to shippers and the economy. Otherwise,
the market forces of supply and demand would not reach equilibrium because
structural barriers hinder balance and efficient transportation is essential
for efficient markets.
The other point is that rail delivers crude oil with a very high level of
safety that is risk equivalent to pipeline. There are various studies that
have compared rail to pipeline, and unfortunately most of these use
different criteria, so the end result is that they do not get an
apples-to-apples comparison. However, there are analyses that have
reconciled these studies and concluded that both rail and pipeline have very
high levels of safety, with risk that is very low and nearly equivalent.
Moving on to slides 17, 18, and 19, they provide an overview of CN's
emergency response capability, which is second to none. The previous slide
shows that CN leaves no stone unturned in reducing the risk of derailments.
However, in the event that a derailment occurs we are fully prepared to
respond effectively with an emergency response plan that was enhanced three
times over the past five years, is based on best practices and is anchored
with training and documentation. It is also noteworthy that we have been
working closely with federal and provincial environment agencies to identify
and map sensitive areas along our rail corridor with the objective to
enhance response capability.
We have also been active with outreach initiatives, which aim to augment
knowledge, awareness and engagement of our key stakeholders. Examples
include regular meetings with communities and elected officials along the
right-of-way, involvement with the Federation of Canadian Municipalities and
provincial and municipal organizations in raising awareness through
communications and presentations during Rail Safety Week.
As well, CN, police and dangerous goods groups interface with the public
and municipalities. Our dangerous goods officers provide training sessions
to municipal emergency responders, who get training on a dedicated tank car
designed for this purpose. As well, our CN police officers are active with
schools, vehicular traffic and pedestrians in crossings and public areas, to
raise knowledge and awareness of rail safety.
In terms of external recognition, it is encouraging to see that all these
efforts are being recognized by external parties, as we see a listing on
slide number 20.
In conclusion, we have provided a brief overview of CN's significant
investments and resources that are being allocated to protect and enhance
safety and sustainability because of our conviction that nothing is more
important to CN than operating in a safe and sustainable manner.
We recognize that both safety and safety culture are a work-in-progress
because we are continuously looking for opportunities to improve and because
we can never be fully satisfied until we eliminate accidents, injuries and
CN is a backbone of the economy that provides efficient and safe
transportation to markets for a large number of products, including crude
oil, thereby supporting market forces that drive economic growth and
efficiency. Much has been done, but we recognize that much remains ahead of
us and we are committed to this journey for the long haul.
We once again thank you for this opportunity and we welcome questions at
The Chair: I do not usually do this, but I will start off with a
couple of questions.
Earlier in your presentation you talked about safety and some of the
things that CN does that other class 1 railroads do not do. You do more
inspections than are required on your rail lines and I commend you for that.
Actually, I believe it has reduced your accidents and those kinds of things.
Obviously, an accident costs money so you do not have that on your bottom
Would you say that perhaps a recommendation to Transport Canada would be
to increase the inspections that are required? It seems to have proven to be
very good, not only for the railroad but for the safety of the public across
Canada. Would that be something that you would support?
Sam Berrada, General Manager, Safety and Regulatory Affairs, Canadian
National Railway Company: Mr. Chair, with respect to your question about
increasing inspections, our presentation mentions that the SMS regulations
provide a framework for railroads to go beyond regulations and one of those
areas is inspections. This has been demonstrated with the increase that we
have made over the past few years. Examples are rail inspection, track
geometry inspections and investments that we make.
A short answer to your question is that the SMS regulations provide the
framework that enables railroads to go beyond what regulations require. This
has been demonstrated to be effective on the strength of the safety
performance as well as the numbers of inspections that are done. In relation
to whether Transport Canada should be doing more inspections within the
framework of the Safety Management System regulations, we can say that the
process works. There is no further requirement for Transport Canada to do
any more than what they currently do. However, they have been very active on
the Safety Management System auditing on a risk-based approach. That in
itself drives the focus at the railway level and supports the improvements
by increasing inspections and making improvements in safety performance.
Mr. Farkouh: One of the key elements is the fact that on the
Safety Management System there is an element with regard to establishing
risk assessments. That is how we have derived the frequency of inspections
on a risk basis in terms of certain segments on the railroad that require
more attention because of the nature of traffic we run there or the
frequency and tonnage of traffic. It is a risk-based approach we have taken,
whereby the SMS regulations allow us to take that approach. It has been very
successful for us and that is where we allow ourselves to go beyond the
The Chair: Thank you.
How do our inspections compare to the U.S.?
Mr. Berrada: In terms of inspections and technologies, the class 1
railroads use similar technologies with often the same suppliers. For
example, Holland provides support for track inspections. There are other
suppliers as well. One of the things that our presentation mentions is that
our wayside inspection network is the densest in North America and has
continued to improve and increase over the last several years. It is not
only about getting more data, but it is about using the data on a preventive
basis by establishing thresholds below the limits that would make the levels
From a wayside inspection perspective, it would be fair to say that CN's
network is the most advanced and the densest in North America. From a rail
inspection network, I would like to say that we are among the highest if not
the highest, but we would have to validate those numbers to confirm them to
The Chair: Thank you.
You have rightfully stated that you do not need a diluent condensate to
ship bitumen, and that is if you are going to refineries. If you were to
take it to the West Coast or the East Coast for shipment to Asia or Europe,
for instance, would that then require a diluent because of it going on a
ship across the ocean as compared to from a site in the Bakken to a refinery
on the U.S. Gulf Coast?
Mr. Berrada: Generally speaking, the movement of bitumen in rail
cars does not require diluent. There is a process by which some of these
products are heated and they retain a low enough viscosity. We talked
earlier in the last meeting we had in March about the fact that when you
have so much mass of product in a rail car it remains in a heated state for
With respect to the need for diluent in rail cars, the answer is in the
great majority of cases you would not need any, whereas in pipe you would in
many instances. That would be sufficient to take it right through to the
trans-shipping that would be required.
The Chair: Do I get from that answer that you need a diluent if
you are going to transport by pipeline to a port and ship trans-ocean, and
by rail it is not required? Is that what you are saying or am I
Mr. Berrada: That is the understanding that I have, but we can
certainly confirm that for you with the right level of expertise.
The Chair: If you would do that, I would appreciate it.
Senator Mitchell: Thank you, gentlemen. I think we are all very
interested in the culture-of-safety concept. It is something that came up
early in our hearings and was, I think, mentioned perhaps first by the
National Energy Board. I would like to explore that a little bit more.
Could you give us some indication of what mechanisms you use to assess or
audit a culture of safety? Second, I know the National Energy Board has some
interest in this and has suggested at some point they might make it a
regulated, structured part of their audit of companies.
Could you give us an update on how you feel about that and whether, from
your understanding, that is anywhere close to occurring?
Mr. Berrada: Certainly. The audit approach we have taken is
completely aligned with the definition of safety culture that was developed
with work groups, including industry unions as well as the regulator. It is
on the Transport Canada website right now. We audit safety culture, both
objectively as well as subjectively. Objectively would consist of looking
for objective evidence and documentation, such as how many risk assessments
were done, the level of involvement of health and safety committees.
The subjective assessment would be done through perception surveys of
employees. We have done those on a system-wide basis, as well as on a local
basis in our divisions. There are a number of initiatives that we use to
strengthen the five dimensions that make up safety culture and characterize
a company with a strong safety culture. They are along the lines of the
leadership, communication, employee engagement, learning culture, as well as
a just culture. One example is our training excellence initiative. Other
examples would include our audit processes, our communication and engagement
initiatives with employees, such as our peer-to-peer safety programs.
Certainly we would be favourable to having this type of approach used,
not only across the railway industry but other industries as well. There is
an initiative currently, with the involvement of industry and Transport
Canada, in further refining this process to take it to the next level.
As our presentation mentioned, to our best knowledge we are the only
railway using this process for assessing safety culture. It has certainly
given us direction in terms of where to focus our efforts, and training
excellence was a good example of that. Certainly we aim to pursue our
continuous improvement of that and to work with different stakeholders and
industries in that regard.
Senator Mitchell: It might be that this is not something you would
want to release, but I will ask in any event. What you are talking about is
very powerful. It would be interesting to see if there is a model or
document that outlines the way in which you audit and reinforce your safety
culture. Is there a place where that is laid out that we could see?
Mr. Berrada: Certainly. We have provided those documents to
Transport Canada, and they have included them on their website, in the
Safety Management Systems Best Practices guide. It is one of the annexes
that is available to other railways, industries and the public. The process
for measuring safety culture is outlined in there.
Senator Mitchell: Great. There is a question on the issue of
dangerous goods: some hydrocarbons might be and some might not. Could you
give us an example of each and why, perhaps, some products that people might
think are dangerous are not considered, under that categorization, to be
Mr. Berrada: There are different types of petroleum products that
are being transported by CN. As I said earlier, we have been hauling
different types for decades. With respect to the crude oils, there is a
variety of types, including light crudes, heavy crudes, bitumen and the
dilbits, which are a mix of diluent as well as bitumen. Each of these
products has different viscosities and chemical contents, one of them being
the amount of sulphur in there.
The great majority of these crude oils are transported under what we call
a UN 1267 placarding, which falls under our emergency response plan. We
would certainly respond to this type of product as we would to other
In essence, there are different efforts right now at the TDG group of
Transport Canada to try to get more resolution between the type of products
and those that have more sulphur so that those may become what we call
ERAP-able, requiring a formal emergency response plan from the suppliers as
well as the railways, but this is something in the works right now.
The Chair: Thank you. We will be a little tight on time because
everyone wants to ask a question. I will have to run the clock a little
closer. Gentlemen, is it okay if you stay a few minutes past our normal time
of nine o'clock?
Mr. Berrada: Yes.
Senator Lang: I have two questions and I will be very brief.
First, could you perhaps outline for us, with respect to your
relationships with the various regulatory bodies in the provinces if there
is a spill, exactly what responsibility your organization takes on, versus
the federal government and the province, if that were to happen?
My second question is a broader one. As you know, there has been ongoing
debate with respect to whether pipelines should even be built in some cases.
If the decision were made that there was not going to be a pipeline, say,
for example, to the West Coast, is your organization able to transport all
the petroleum resources that could be sold vis-à- vis the West Coast? I am
thinking primarily of Kitimat or even Prince Rupert. If you are capable of
carrying that estimated volume, can you do it safely?
Those are my two questions, thank you.
Mr. Berrada: With respect to the emergency response and our
involvement with both federal and provincial agencies, this is something we
have been, as I said earlier, quite active in, in working with them. Our
relationship with Transport Canada, as well as the TDG group and the
provincial agencies, is very positive. They are aware of our emergency
response plan capabilities and support them.
In the event of an incident, we establish what we call an incident
command process, which involves all the stakeholders, not only the railway
and the federal, municipal and provincial agencies, but also local fire
chiefs and so on, where they all get together in terms of understanding what
the plan is for the response and contributing to its progress.
With respect to pipeline and our capability to move product to the West
Coast safely, the record speaks for itself. As we mentioned earlier, there
have been studies that have reconciled the various efforts of looking at the
safety of rail versus pipeline, and they both show that rail and pipeline
are extremely safe and basically risk-equivalent. We can provide those
studies to you.
Our projected volumes for crude oil are basically doubling this year from
30,000 carloads in 2012 to about 60,000 carloads in 2013. We have the
capability to go beyond that.
To answer your specific question, we would have to understand exactly the
volumes that we are talking about moving to Kitimat, to ensure that we build
them into our forecasting to provide you with a definitive answer.
Mr. Farkouh: To add a bit to that, I do not know if we are in a
position to really say whether or not a pipeline should be built. What is
important is that we respond to the needs of our customers and provide our
network to reach those markets that they so desire.
Mr. Berrada made mention that there will be an increase with regard to
carloading of crude oil in this calendar year. In terms of how market
conditions go, and if there is a pipeline or not would there be additional
carloads, whatever the case may be, if we undertake any endeavour of
additional traffic, the safe transportation of these goods is always kept in
mind. If there is additional infrastructure required, or additional service
required, it is all done under the same standard. We must emphasize that, so
there is no intention of changing our model in terms of safety. If we do
change it, it will be to enhance some areas, as we talked about, continuous
improvement with regard to safety. Hopefully, that answers your concern.
The Chair: Thank you. We will have to tighten up the answers a
little bit, if we could. We want to get the information, but I am going to
be tight on time.
Senator Ringuette: I drive constantly between Ottawa and New
Brunswick. In the last 10 years, I have observed a lot of what is going on
along the road. I have noticed more activity with regard to your rail
grinder. I am assuming three possible scenarios: first, heavier and more
frequent weight on the system; second, there is certainly a weather impact
on the rails; and, third, I am wondering if it is because you have changed
your rail replacement plan. Which one is accurate, or are all three accurate
with regard to the increased use of the rail grinder?
Mr. Berrada: Rail grinding is an important activity that allows us
to mitigate risk in terms of potential rail failures and also to extend the
life of the rail and the wheels. By grinding rail, we eliminate some surface
defects that could potentially propagate into cracks. This is an activity we
have been using actively and it has been growing. Like any track, we look at
the gross tonne miles that we haul. We look at this risk as well in terms of
the types of products hauled, and we make a determination as to how many
rail inspections we do on an ultrasonic rail basis. We also make a
determination based on the age of the rail and those two other factors as to
how much rail grinding we do. This is an activity that is reassessed every
year and is fine-tuned in response to those three factors, but the key
principle is that it is used to reduce risk and extend the life of the rail.
Senator Ringuette: In the last five years have you reduced the
rail replacement needs? This is very important with regard to the safety of
rail transportation. In the last five years, have you reduced rail
Mr. Farkouh: In our presentation, we talked about the investment
we are making. In the past five years, we have invested over $8 billion.
This year, we will be at $2 billion of investment in our network, of which
$1.1 billion is the regular maintenance, which would include replacement of
rail, replacement of ties and the infrastructure related to the day-to-day
operation of our company.
With regard to slowing down or ceasing in terms of rail replacement, that
has not been the case. In fact, as each year goes, we are very aggressive in
terms of ensuring we are maintaining that level of activity on the upkeep of
the railroad and our investments have shown that over the past years.
Senator Massicotte: As you answered Senator Lang, you said
multiple studies indicate that the risk scenario for pipelines and rail is
basically the same. I think on May 17 you probably saw the article by Shawn
McCarthy in The Globe and Mail whereby our Prime Minister, Mr.
Harper, basically said that the pipeline poses less environmental risk than
rail in moving crude. Per that article, the U.S. Department of
Transportation confirms the same.
Are those statements by the U.S. Department of Transportation and Mr.
Harper accurate? If they are, how does that align with your statement that
the safety risk is largely the same?
Mr. Berrada: Regarding the challenges out there, as we have
mentioned earlier, there have been a number of studies. The one most often
quoted is called the Manhattan study, which showed rail to be higher in
terms of risk than pipeline.
Having said that, there were two significant shortfalls in that study.
One of them is that they established a threshold of five gallons for
pipelines but no threshold at all in terms of measuring spills for rail, so
they significantly increased the number of spills of rail versus pipeline
because of that.
The other area was that they underestimated the volume for rail
transported by a factor of three. The most recent analysis we have, which we
can share with you, does a historical study between rail and pipeline
looking at the frequency and volume of spills, and brings those two into
something called the spill rate per billion gallon miles transported or
billion tonne miles transported. It shows both of them to be extremely safe
and actually shows rail to be slightly better than pipeline.
Again, different studies may show different things depending on the
thresholds they use and the time periods assessed. This is why we are
confident that both are extremely safe and basically equivalent.
Senator Massicotte: You are saying that our Prime Minister and the
U.S. Department of Transportation are using the wrong studies?
Mr. Berrada: The one we are referring to, sir, was issued in the
last week. I do not know which one they referred to, but we can certainly
provide you with the one made available to us.
Senator Massicotte: In the same article, Michael Bourque, who is
president of the Railway Association of Canada, says that rail is 2.7 times
more energy efficient per kilometre travelled than pipeline. For the sake of
our audience, could you explain how that would have been calculated? How
could he say that when our Prime Minister and the U.S. department says the
Mr. Berrada: The answer is that greenhouse gas emissions depend on
a number of factors, probably the most significant being the type of product
being hauled. A good example is the bitumen that would require approximately
30 per cent value in pipeline. There are greenhouse gas emissions in getting
the diluent from its origin to the point that it is going to be mixed with
the bitumen, and then there is the cost of moving that much more volume in
Specific examples like that would certainly favour rail, but when you
look at the broad spectrum of products that are being transported, we can
say three things. First, rail, and particularly CN, has made great efforts
in reducing greenhouse gas emissions and is 15 per cent more efficient than
the average railroad. We are four to five times more efficient in terms of
greenhouse gas emissions as compared to trucking, and versus pipeline it is
basically equivalent for the spectrum of products being transported.
However, you will find some areas where pipeline may have an advantage and
other areas where rail will have an advantage.
Senator MacDonald: I have a couple of questions on liabilities
insurance. Your network runs coast to coast in Canada and to the Gulf Coast
in the U.S. Can you give us a comparison of liabilities you face in shipping
hydrocarbons, particularly dangerous hydrocarbons, through Canada and the
U.S? Also, can you give us an indication of the comparative insurance costs
for companies that are shipping goods of this nature across Canada or
through the U.S?
Mr. Berrada: We do have insurance with an amount for which we
cover our own costs. We can provide you with more details. The insurance
company we use provides us coverage across Canada as well as the U.S.
Unfortunately, we do not have the level of expertise at this point to
give you a specific answer to your question, but we can certainly provide
you more detailed answers to that. The overarching theme is that we do have
liability insurance and there is a deductible from which point we cover
ourselves and beyond which the insurance company will cover us.
Senator MacDonald: I take it that when hydrocarbons, and
particularly what are considered dangerous hydrocarbons, are shipped, the
insurance is all covered by CN and not by the company that is shipping the
Mr. Berrada: We have responsibilities as a transporter. As an
example, the response to a potential spill for which we would be responsible
to cover the cost, including any potential cleanup and environmental
mitigation, we do cover. We are self-insured up to a certain level, and
beyond that level we have an insurance company that protects us.
Senator MacDonald: I would like to see more of a breakdown on the
liabilities and a comparison of the liabilities. My understanding is that
the liabilities in the U.S. are much greater than the liabilities in Canada;
is that correct?
Mr. Berrada: The general answer would be yes, but we would have to
get back to you with more details on the specifics.
Senator Wallace: Gentlemen, whether the movement of the petroleum
is by rail or by tanker, if an incident occurs, the timeliness of the
response will, to a large extent, determine the effectiveness of any
recovery. We have heard evidence from tanker companies that they have a
network of spill response organizations. They pre-position spill response
equipment so that, if an incident occurs, a quick response can occur.
How does your experience compare with that? What do you do in the rail
business to ensure that, where rail passes sensitive areas, particularly
waterways, an effective and quick response can take place?
Mr. Berrada: As mentioned earlier, we have an emergency response
plan that continues to be enhanced on the opportunities and lessons learned.
We have a network of dangerous goods officers. That is summarized on slide
18 in terms of system protection with 50 dangerous goods responders that are
decentralized across our system. We have about 21 environmental officers to
expedite response as well. We are supported by shippers that have emergency
response teams and contractors.
As mentioned earlier, we have been working with not only contractors but
also agencies to identify sensitive areas, and we have a number of caches
with spill kits near sensitive areas. A number of efforts have been
mobilized over the last several years to ensure not only the expeditiousness
of the response but also its effectiveness, with the right equipment being
positioned in the right places depending on the risk level.
Senator Wallace: In terms of prioritizing those sensitive areas,
we have heard of situations where rail cars have caused petroleum to go into
major waterways. Would you prioritize waterways over which CN rail tracks
would pass and ensure that there is spill response capability in reasonably
close proximity to those sensitive areas?
Mr. Berrada: Absolutely. A risk assessment is done in terms of the
different elements that would increase environmental exposure. Waterways are
obviously a very significant one, and we would mobilize our efforts,
including availability of spill kits, booms and contractors, to a greater
proportion in those areas.
Senator Seidman: Most of my questions have already been answered
about liabilities and sustainability. To follow up on Senator Wallace's last
question, does the rail industry have industry cooperatives or third-party
organizations, similar to what we heard about from the marine and the
pipeline industry, which would assist in a spill response?
Mr. Berrada: Yes, absolutely. Again, slide 18 mentions that in
addition to working with shippers we work with specialized emergency
response contractors. We also work with other railroads in certain areas to
share resources so that we augment the effectiveness of our response. We use
a number of avenues to bring a collaborative effort to the response to speed
up the response and make it more effective.
Senator Seidman: If a spill occurs in an isolated area, you might
have shared resources with a cooperative in the area or another railway?
Could you elaborate on that, please?
Mr. Farkouh: Our outreach approach includes a network of
contractors with which we interact. We strategically position our equipment
in locations that could be sensitive areas for us. We take into
consideration areas that are potentially less accessible. We secure mobility
for us to get to these locations in an expeditious fashion. We work with the
other railroads. We also work with communities. We have a large network of
first responders that we have trained in communities throughout Canada. Most
important, we have a first line of defence. We have trained a vast amount of
people in our network to respond in the event of an immediate need, and we
draw in all resources necessary in the area that we have identified in these
Senator Seidman: I want to ask one question about the liability to
When Transport Canada officials appeared here before our committee in
late March, they discussed liability limits for marine oil spills but they
were not able to provide information on a similar standard or rail
accidents. In fact, the marine liability limits are being reviewed.
Do you have anything to add to help us understand the liability issues;
that is, if there is a similar review in place or similar standards as there
are for marine spills?
Mr. Berrada: Further to the previous question, as we said, we will
get back to you with more details. Again, the general principle is that we
do have liability insurance and that protects us beyond the amount for which
we cover ourselves.
With respect to movement of crude oil, like any other product, we would
ensure that there is adequate coverage in terms of the liabilities and
response cost that would be associated to it, either through ourselves in
terms of self- insurance, below that threshold or above that through which
we would engage our insurance company.
Senator Seidman: These limits are being reviewed?
Mr. Berrada: I am sorry; I do not follow ``being reviewed.'' We
have been insured for as long as I can remember and the insurance companies
have covered us. There have been different insurance companies over the
years but we have always been insured and, again, beyond the thresholds for
which we self-insure.
Senator Patterson: Gentlemen, you described your four categories
of customers and shipments. Let us start off with CN. What percentage of our
total rail traffic is for hydrocarbon commodities? Has that percentage
changed in recent years?
Mr. Berrada: Yes; our petroleum products represent approximately
17 per cent of our total movement of goods. Crude oils, as we know, have
increased particularly in the last two years and we expect it to double in
2013. We can get back to you with the specific amount, if you wish, of what
crude oil represents within that 17 per cent portfolio of petroleum
Senator Patterson: Thank you.
Senator Unger: My question is supplementary to the previous
question. On slide 24 you state that you have the scope to double your
business in 2013. When you say you have the scope, how would you do that?
Second, given that there are only two class 1 railways in Canada to
service thousands of shippers, is this doubling of your business to service
existing suppliers to provide better service to them or is it for
anticipated new business?
Mr. Berrada: Clearly, one of the key challenges is the
availability of rail cars. This is something that is typically owned by
either the customer or the leasing companies. This is an area that is being
significantly ramped up, has been and will continue to be over the next
couple of years to respond to the need.
In terms of network capacity, this is another factor for which we
continuously assess our utilization rates versus our capacities and upgrade
them. As an example, this year we are investing in our western region to
increase capacity to prepare for the future. We work with existing
customers; we work with new customers, to see what supply chain needs would
be required to service them; and we work collaboratively with them to
implement those resources and facilities that are required.
Mr. Farkouh: In the current state we are seeing increases with
some existing customers, but we are also seeing additional customers
expressing an interest for using rail.
Senator Unger: For example, you will be adding many new rail cars,
and you said you lease rail cars from other people. Did I understand that
Mr. Berrada: To clarify, CN typically does not own the tank cars
that would haul the crude oil. These would be billed according to North
American standard. They would be either purchased by the customer with whom
we do business — and our rate agreements take that into consideration — or
they would be leased, typically by the customer, again building into the
rate agreements that we have with them.
Senator Unger: What about non-petroleum-related customers, for
example, lumber? Do they own their own cars?
Mr. Berrada: Typically we will see a mix of cars running on any
given day on any given line on the railroad, some of which will be owned by
CN; others will be owned by customers or leasing companies. As I said,
typically the tank cars would not be owned by the railways. The other car
types for lumber, as you said, would be what we call centre beam cars, or
box cars. They could be owned by the railways but could also be leased as
Senator Wallace: Following up on Senator Unger's comment, as you
said, CN does not own all the tank cars that pass over its tracks; many of
them are leased and licensed.
What steps does CN take to ensure those rail cars meet the proper safety
standard? Is it simply up to the owner of the tank cars to do that? Where
does CN come into that?
Mr. Farkouh: In regard to any railroad piece of equipment rolling
on our network, we have an obligation to inspect that equipment at various
locations throughout our network. We have staffing in various locations
right across this country where we have designed and scheduled areas where
we must perform safety inspections on the rail cars; that is, when they are
stationary in the yards. We also made mention about wayside detection that
also monitors wheels and bearings of cars. A safety inspection is also done
Regardless of the markings of a car on that piece of equipment, we still
have an obligation and a vested interest to ensure that it meets all of our
standards and those of Transport Canada in terms of the safety of that
Senator Wallace: You conduct these safety inspections of these
third party tank cars. Are the details of that inspection, the frequency and
the details that you examine, something you determine through your own
policies as to what you will do or are you regulated? Do federal regulations
or provincial regulations determine the extent of these safety inspections?
Mr. Berrada: The answer is both of the above. Clearly, we comply
with all regulations but also exceed them, particularly when it comes to
leveraging technology with our wayside inspection systems. We have in our
toolkit, annex 2 that we provided, a number of technologies that are used
that inspect for potential defects to ensure the safety of that equipment.
Most of those are not even regulated, yet we have invested in them.
To add to that, there are North American standards for the construction
of rail cars in the Association of American Railroad specifications and
Department of Transport specifications to which rail cars are built to and
all of our inspections, both visual as well as technological, assure the
safety of that equipment.
Senator Wallace: That is the building standard. What about the
Do regulations establish the parameters for that maintenance schedule for
each of those tank cars, or is that something you determine through policy
Mr. Farkouh: With regard to the daily maintenance, there are
Transport Canada regulations with regard to allowances, and it is imperative
that we follow them. In some instances, we actually exceed them. We have
instances where we will actually exceed levels of defects on wheels, where
we take a position that we will change them even earlier.
To say that we formulate our own policy is not necessarily the situation.
There is a base requirement with regard to the maintenance standards and
acceptabilities, whether it be for the rail or the railcar, regardless of
the markings of that car. For us a car is a car is a car in terms of the
safety element. We do not make a distinction between them. They are treated
equally. There are base requirements throughout Canada for the federally
regulated railroads in terms of what the maintenance requirements are for
those pieces of rail equipment.
The Chair: Thank you very much, gentlemen, for taking the time to
appear before us. I know you are both very busy. We appreciate it very much.
There were some good questions and answers.
You commented on some information that you will provide to the clerk so
that all members will get a copy of it. I would ask you also if you could
provide us with those safety studies — rail versus pipeline — that you spoke
about. If we could get those studies, however many there are, we would
appreciate those as well.